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Carvana Experiences a Surge as the Used-car Retailer Surpasses Profit Estimates

Carvana Co. exceeded Wall Street’s profit forecasts in the final quarter of 2023 and anticipates enhanced earnings for this quarter, propelling its shares higher as the used-car retailer navigates challenges posed by high interest rates and inflation.

In the fourth quarter, adjusted earnings before interest, taxes, depreciation, and amortization stood at $60 million, as disclosed by the company in a statement on Thursday. This figure surpassed the average estimate of $58.6 million compiled by Bloomberg analysts. However, revenue amounted to $2.42 billion, slightly below expectations.

Carvana’s positive performance follows a year of consolidation and debt reduction. Despite this progress, the retailer is expected to continue burning cash this year, given its ongoing debt obligations and the imperative to manage expenses.

The company’s gross profit per unit surged to over $5,500 from $3,022 in 2022. Analyst Mike Ward from Freedom Capital Markets remarked, “They are positioning themselves to weather the pricing disruptions in the market. However, they still face significant cash burn.”

He anticipates the company to utilize $1.7 billion in funds over the course of this year and the next. Following regular trading in New York, Carvana’s shares surged by 20% as of 6:15 p.m. Analyst Ward suggested that part of the surge could be attributed to short sellers, who account for 33% of the shares, closing their positions. Year-to-date, the stock had declined by 1% through Thursday’s close.

Carvana currently carries a net debt of $5 billion, reduced by more than $1 billion. The company’s interest payments escalated to $632 million from $486 million the previous year, equating to $2,000 per vehicle sold last year.

Excluding a one-time gain of $878 million from extinguishing $1.2 billion in debt, the company would have reported a net loss of $728 million.

Nonetheless, the company remains optimistic about its profit trajectory. Despite noting the ongoing uncertainty in the macroeconomic and industry landscape, Carvana projected first-quarter adjusted EBITDA to be “significantly above” $100 million.

Over recent quarters, the online car retailer has taken steps to reduce costs and restructure certain debts to decrease interest payments. Carvana is actively working towards restoring its financial stability and resuming growth following a previous unsuccessful expansion attempt several years ago.

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